Debt has value; debt that seems fairly safe, that is not beset with default and payments problems has even more value and, let’s face it, Northern Rock owns an awful lot of debt. Not its debt, understand, but the mortgage borrowers it has lent money to in the past.

The problem is this: the gap between the amount of money Northern Rock has lent out, and the amount it holds as deposits in its accounts, is £30 billion. So, in effect, it owns a £30 billion asset, but as things currently stand, it hasn’t paid for it.

But, and this really has got some people’s goat, the bank was still planning to make an interim dividend payment to its troubled shareholders. As recently as September 14 it confirmed it planned to pay out 14.2 pence a share. The current share price is 180 pence. It might have felt they deserved something back and, no doubt, senior management was especially keen as they had a lot to gain from such a dividend, but when you think about, it really does take the biscuit. To fly in the face of this public backlash and to pay out dividends, interim dividends at that, seemed to be either an incredibly brave, or a foolhardy move. That it would change its mind seemed inevitable.

You see, shareholders might once have thought their future stream of dividend payments was as solid as a rock; the trouble was, it was as solid as Northern Rock.

Now, the bank has at last said it is in “preliminary” takeover discussions. So it seems an offer will be on the table soon, and indeed at the time of writing the share price had gone up. But right now, Northern Rock is running a fire sale, and fire sales never bring the best price.
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